Why Counteroffers Should Address More than Pay

Times are stressful for employees and employers alike. But while many industries are struggling, others—maybe your competitors—are hiring. If one of your employees is offered a job somewhere else, it may be worth extending a counteroffer. But employers should understand that, if the offer doesn't address what's driving an employee to leave, it isn't likely to keep that employee onboard for good.

A high retention rate can be financially beneficial to an employer. Each departure costs about one-third of that worker's annual earnings, according to the Work Institute, a Franklin, Tenn.-based employee retention and engagement firm.

A recent study by job-search firm LiveCareer asked 212 hiring managers about counteroffers. According to survey respondents:

• Employees reject counteroffers 35 percent of the time.
  

• Small companies with fewer than 50 employees are more likely to make counteroffers.
  

• 39 percent of hiring managers believe that employees are more engaged after accepting a counteroffer, and 25 percent believe extending counteroffers decreases performance.
  

• 65 percent of employees who accept a counteroffer stay with the company for at least another two years.
  
  

The survey also delved into what incentives hiring managers were offering to keep valued employees onboard, as shown below.

[SHRM members-only toolkit: Managing for Employee Retention]

Career Growth Drives Retention

"HR professionals should keep in mind what incentives are important and persuasive to employees," said Joe Mercurio, a member of the communications team at LiveCareer. When a raise isn't possible, effective counteroffer incentives include  promotion, role transition, and better schedule, he pointed out.

Further evidence that retention isn't driven by pay alone comes from survey findings released in April by the Work Institute. The consultancy's 2020 Retention Report analyzed data from over 233,000 employees from 2010 through 2019, including 34,312 employees who quit their job last year.

"One out of every five employees who chose to accept a new job with a different employer in 2019 was because of career development concerns," noted William Mahan, sales operations manager at the firm.

Employees leave "because they want to learn, grow and be challenged in their roles at work. If not challenged, they will find a job where they will be," he said.

A counteroffer that doesn't address those concerns isn't likely to retain employees eying a competitor's offer—or to keep them happy for long if they choose to stay.

Related SHRM Articles:

Do Counteroffers Make Sense?, SHRM Online, October 2018

Extending Counteroffers: Savvy Move or Losing Gambit?, SHRM Online, May 2018

Using a Job Offer as Leverage Is No Longer a Big No-No, SHRM Online, May 2016

Stay-Put Counteroffers Can Backfire, CFOs Say, SHRM Online, June 2015

How to Make a Counteroffer, HR Magazine, November 2003